London Central Portfolio Quarterly Review Prime Central London

Prime Central London witnessed a rally in Q2, both in volumes and prices. This follows two years of price suppression as buyers held back due to Brexit and increasing residential taxes. The increase in average prices, however, can be attributed to a surge of high value sales with buyers taking advantage of price discounting in the luxury sector. Underlying price appreciation for the rest of the market remains significantly less buoyant.

Sales volumes strengthen slightly in Q2 2017, with an annual increase of 4.8%. At the same time, average prices reached £1.95m, following quarterly price growth of 7.9%. This rally is, in part, a result of buyers seeking safe havens in the face of increasing global uncertainty, together with the attractions of weak sterling and low interest rates.

This statistical increase in price growth has been buoyed by a number of high value transactions and an increased proportion of luxury sales. The £5m - £10m sector was the most active, with the proportion of sales increasing by 23% over Q1. Q2 2017 also saw the most expensive sale ever to transact through Land Registry at £90m.

As a result, the top 10% of the market performed particularly strongly in Q2, seeing a 20% increase in average prices to £8m. Excluding the top 10% of the market, average quarterly price growth was 4.5%.

The lower value end of the market, however, was more sluggish. Price growth for property under £810,000, largely representative of the buy to let sector, saw a 1.3% quarterly increase in average prices.

Average prices reached £1,946,151 in Q2 2017, following quarterly price growth of 7.9%. Transactions have also strengthened marginally, following a sustained period of falls from 6,044 in Q2 2013. According to LCP’s analysis, 3,885 sales have taken place over the last 12 months, representing a 4.8% increase, but remain 40% lower than 4 years ago. Following the market slow down as it adjusted to increased residential taxes and Brexit, the rally in Q2 can be attributed, in part, to buyers seeking safe havens in the face of increasing uncertainty as global tensions mount, together with the attractions of weak sterling and low interest rates.

A detailed analysis of the headline figures, however, also indicates that price increases have been buoyed by a number of significant high value sales, including £90m for a flat in 199 Knightsbridge Apartments. Together with some very large individual sales, transaction data shows the £5m - £10m bracket was the most active in Q2 with a 23% increase over Q1. This can be attributed to international homebuyers taking advantage of notable price discounts, alongside beneficial exchange rates.

As a result, the top 10% of the market saw prices increasing 20% to average £8m. With this excluded, average growth falls from 7.9% to a more typical 4.5%. The buy to let sector, however, is seeing a much slower picture as investors continue to adopt a wait and see attitude. Price growth here was a more sluggish 1.3% for properties under £810,000, whilst the proportion of sales under £1m also decreased by 9%.

The monthly average price breakdown also suggests the rally may be short-lived. Bumper transactions boosted average prices to as high as £2.2m in April and May but June reflected a more sedate picture with average prices falling back to £1.65m.

Prime Central London: the rise of luxury homeowners

As well as seeing the most expensive sale ever to transact through Land Registry in Q2, LCP has also noted a change in buying dynamics within its client managed portfolio. Over the last 12 months, international homeowners have been increasingly attracted by the discounts available on luxury properties, continuing low interest rates and exchange rate benefits. This is in addition to Prime Central London’s attraction as a safe haven asset class and global centre of culture, finance, education and tourism. Homebuyers represented 45% of all purchases, triple their share from the previous year.

This is in contrast to the buy to let sector, where the purchase of lower value properties has decreased by one third. With property in this sector commercially rented, sellers who are unable to achieve their price expectations are choosing to hold onto their assets, resulting in less activity. Many investors are still taking stock of the market, weighing up the right time to re-enter.

With the majority of investment property now being marketed by highly motivated sellers, there are some attractive discounts available. As a result, the average purchase price for rental investors has fallen 27% to £816,429.